On September 16, 2016, CIPE hosted a panel discussion on the need for rapid response in countries where a significant opportunity has appeared for achieving anti-corruption progress. CIPE’s Rapid Reaction Anti-Corruption Project is designed to address this need by deploying a team of anti-corruption experts with international stature to countries in transition. The experts, with NGO, business, and law enforcement backgrounds, would be swiftly deployed to countries which have governments newly empowered to address corruption, and a strong economic interest from foreign firms previously repelled by corruption risk.

Today’s podcast is a recording of the event at which experts discussed corruption challenges and practical solutions. The event was opened by CIPE Managing Director Andrew Wilson [then Executive Director (acting)] and was moderated by Chrstian Caryl, Editor of the Foreign Policy Democracy Lab blog.

Panel speakers included President of the National Endowment for Democracy Carl Gershman; Senior Associate at the Carnegie Endowment for National Peace Sarah Chayes, and author of Thieves of State: Why Corruption Threatens Global Security Sarah Chayes; and CIPE Program Officer for Ukraine, Russia and Central Asia Eric Hontz.

Posted on20 April, 2016byEric Hontz|Comments Off on Ukraine Needs to Privatize its State-Owned Companies — But Rushing It Would Repeat the Mistakes of the Past

Storied aviation company Antonov, makers of the world’s largest cargo plane, is in no position to be privatized.

The stakes for reforming Ukraine’s state-owned companies are high: these companies are the lifeblood of a corrupt, sclerotic crony capitalist system that scares away potential investors, drives off international donors, and robs the Ukrainian government of legitimacy. But privatizing them as quickly as possible is not the solution.

Even after mass privatization in Ukraine in the 1990s, the government still owns a large portfolio of companies in a variety of sectors – from heavy industry to banking — that employ over 900,000 employees, far more than any private firm. Reforming these state-owned enterprises (SOEs) has been a slow process and remains incomplete due to weak corporate governance, unmotivated management, and a near-total lack of transparency. None of these problems will be solved by simply speeding up the process.

The demand for rapid privatization is a familiar tune. Western “expert” advice in the early 1990s led to a huge transfer of wealth from the former Soviet Union to a handful of connected insiders, particularly in Russia: first through voucher privatization and later through the disastrously corrupt loans-for-shares schemes in the run-up to Russia’s 1996 election.

To get an idea of the scale involved, a 1993 paper by several Western economists who worked directly on the voucher privatization program estimated that most of the Russian Federation’s civilian industrial base – nearly every plant, factory, and mine in the country – was effectively sold off to insiders for between $5 and $10 billion, less than it would have cost to buy a single mid-sized Fortune 500 company (and roughly equal to the market capitalization of Whole Foods today). Still, at the time they regarded this program as a great success.

Unfortunately, the corrupt and predatory “oligarch” elite, created practically overnight, proved to be more interested in asset-stripping than in transforming their new firms into firms that could compete on world markets. What followed was the largest peacetime economic collapse of any country in recorded history. The sheer volume of banditry surrounding state assets during the 1990s led many average citizens in post-Soviet countries to believe that lower standards of living and a complete lack of justice were a natural part of living under democracy.

When it comes to gender diversity, too many boards still look like this in 2015 (Photo: Wikimedia Commons)

Corporate boards have historically been comprised mainly of men. However, a number of countries have begun imposing quotas for the number of women on the boards of publicly traded or state-owned companies — an idea that is now being considered as a European Union-wide rule. This is likely to compel businesses elsewhere in the world, including Pakistan, to consider the gender diversity of their own corporate boards.

According to the International Finance Corporation, just 13 percent of 303 companies surveyed in Pakistan in 2010 had more than one woman director — a sample that included publicly listed companies, large family-owned firms, and private, unlisted companies.

CIPE’s long term partner Riinvest Institute for Development Research is celebrating their 20th anniversary this year. To mark the occasion, Riinvest held a conference on May 15 and 16 titled, “Activating the Sources of Economic Growth in Kosovo”. The conference brought together an impressive audience— the President and the Prime Minister of Kosovo*, the Deputy Minister of Finance, the World Bank Country Manager, other high level public officials, academics, business people, NGO leaders, the donor community, and members of the media.

*Kosovo’s newly-elected Prime Minister, Isa Mustafa, is the former President of Riinvest.

Riinvest leaders presented awards to a number of partners, individuals, and organizations who have supported the organization since its inception. CIPE had the honor of being presented the first two awards, one for Executive Director John Sullivan and one for the organization as a whole. CIPE Senior Consultant Carmen Stanila kindly received both awards on behalf of John and the organization.

Posted on6 April, 2015byGuest|Comments Off on Public Procurement: The Nexus of Public and Corporate Governance in Combating Corruption

Governments around the world spend trillions on public procurement each year for everything from office supplies to military equipment to infrastructure megaprojects like this $5 billion Panama Canal expansion.

By Kirby Bryan

For over a decade, the World Bank Group’s Doing Business index has served as quintessential tool for determining how well a country’s institutional infrastructure is suited to the promotion of a productive business environment. But something was missing. Businesses and governments interact on levels beyond permitting and regulation: the public sector can also be a client.

Public procurement can provide opportunities for corruption. When seeking lucrative public contracts, companies look for any opportunity they can take advantage of that will improve their ability to secure a successful bid. Unscrupulous government officials can use their influential positions to attain favors and gifts from businesses pursuing public procurement tenders.

In March 2015, the World Bank Group, in conjunction with the George Washington University Law School, held a release event for the first installment of its Benchmarking Public Procurement Index.

The adoption of good governance practices is beneficial to listed companies, unlisted companies, and family-owned enterprises.

Good governance practices strengthen companies by building relationships among investors, boards of directors, managers, and employees. Implementing corporate governance guidelines allows businesses to obtain capital at lower cost, enhances business strategy, and attracts the best human capital.

In the last decade, Pakistan has experienced a sizeable increase in the number of unlisted companies, particularly family-owned organizations. These enterprises form the backbone of Pakistan’s economy and growth; the need for corporate governance guidelines for these particular types of companies has never been greater. Instituting good governance practices is particularly effective in overcoming the challenges many family-owned enterprises face.

Program Officer Stephen Rosenlund discusses best practices in corporate governance based on CIPE’s experience in the MENA region.

On September 9-10 in Ramallah, I had the privilege of participating in a CIPE-supported training workshop on corporate governance with the leaders and technical staff of nine Palestinian chambers of commerce from the West Bank. This was an unprecedented gathering organized by our partner the Palestine Governance Institute (PGI) and the Federation of Chambers of Commerce, Industry, and Agriculture to activate the chambers as resources for their member firms on corporate governance matters.

The two-day training workshop immersed participants in applicable legal and regulatory frameworks, the role of oversight institutions, and best practices in corporate governance at the firm level. While the different requirements applicable to publicly traded and private companies were examined, presenters emphasized the imperative for all firms regardless of size or ownership structure to adopt sound corporate governance practices. Data from numerous studies show that investing in corporate governance is a good business decision that enhances the performance and sustainability of companies. In addition, it has a positive aggregate effect on society in the form of economic development.

Moreover, well-governed companies tend to act ethically — by resisting paying bribes, for example — and therefore reduce the amount of corruption in society. A private sector that has its own house in order is also better positioned to engage in dialogue with public officials to bring about needed policy, legal, and regulatory reforms that will improve the environment for business.

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The CIPE Development Blog provides coverage of the Center for International Private Enterprise and its partner network at work -- highlighting successes, drawing out lessons from failure, and exploring the broader issues of political and economic development. For more information visit CIPE.org.